RS9 Have a Coke and a Smile

I hate soda. I think the carbonation in any type of soda is absolutely horrifying when it is guzzled down your throat stinging your stomach when swallowed. But, for a nickel a pop, I think I would've made myself a fan of Coca Cola.

In our economics class, we discuss about how prices go up and down because costs change and because supply and demand changes. But this podcast from Planet Money on National Public Radio fights against this theory of prices getting higher or getting lower, at least for Coca Cola soda products for 70 years.

In 1886, Coca Cola was born. A soda syrup soon became a hit popular beverage and over a century later is still one of the most drank sodas in the world. When the soda was first produced, company executives decided to sell it for only 5 cents a piece. The glass of soda would cost five cents no matter where you bought it, and the company did their best to control that promise. Years after the company began, two lawyers coining a bottle came to the president of Coca Cola begging for him to allow his product to be sold in their bottles. To get them out of his office and away from him with their crazy ideas, the president promised to sell the Coca Cola syrup to them for an extremely low fixed cost, forever! (Man, was he feeling the secondary effects of that decision later...) Once the soda became bottled, people everywhere went wild for the 5 cent soda. It was marketed as the cheapest, but best quality, soda there was, and Coca Cola made sure to control it's serving size at all venues that sold it's product by providing companies with specific sized glasses and bottles. The soda remained at 5 cents for 70 years.

From an economics viewpoint, this seems unreasonable and frankly crazy. The fact that Coca Cola was sold at the same price for 70 years absolutely obliterates the law of demand. The law of demand is concerned with the inverse relationship between price and quantity demanded. If the price of an item never changes, then who cares about the quantity demanded of that item as long as they are breaking even? 

One note in the podcast that absolutely boggled my mind was regarding Coca Cola's "ninth bottle objective."Every ninth bottle of soda in a vending machine was empty, so that the customer would put in another nickel to buy a full bottle...assuming the next bottle would be full! From a marketing perspective, I ask this question. Is it not the duty of a company to satisfy the customer and bring them happiness through their product? If I was EVER a ninth bottle customer, I would be livid and boycott the product immediately...but maybe that's just me! When this objective was put in place, but not for long, the average price of the bottle of Coca Cola rose to 6.25 cents and did gain the company some small revenues. 

Ultimately, I think it was a great marketing scheme for Coca Cola to hold their price at 5 cents per bottle for such a long time. They created a brand and a name for themselves in the years before the gold standard was gone, and their long standing customer basis is what allows them to continuously thrive as a major soda company today. So for consistency and smart marketing, bravo to you Coca Cola. But, for making economists happy, you lose. 

RS8 Manufacturing the Song of the Summer

Global pop star Rihanna has three hit songs from her most recent album, and this month she’s going for her fourth with her latest hit “Man Down.” Zoey Chase, from NPR’s Planet Money, wonders how much it costs to put a song on the pop charts and create a “hit single.”

When we see a song at the top of the iTunes chart, hear it for the first time on the radio, or see the music video for the first time, we generally think that the artist’s “hit” new single is “new” because it’s gaining popularity. Oh, but are we wrong. A hit new single is a hit and is new because of the marketing and PR that the artist’s record label does to brand it that way. Costs to make a hit single (along with a video) can easily rise up to 1 million, 178 thousand dollars.

Here’s the breakdown:

Record writing camp pays $20k - $25k to the best of the best to come and write songs, Rihanna ends up choosing what she likes and each song on the album = $18k

Song writers = $15k

Song producers = $20k

Vocal producers = $10k - $15k

Extra studio fees = $10k

TOTAL COSTS FOR ONE SINGLE: Roughly $78k

A crappy Rihanna song that gets stuck in your head because it’s overplayed: Priceless

Notice the key word, “single.” Rihanna’s song Man Down may have only cost a mere $78,000, chump change obviously, but the costs to make it a HIT single are what sky rocket that $78,000 to over $1.5 million. A million dollars can be attributed to what record producers call the “record rollout”, comprised of marketing, moving artists from place to place, and radio. PR specialists for artists want to make sure that when their single drops, it drops it like it’s HOT. Every radio station, every billboard chart, and every musical television show should be playing their song. Oh, and the music video you ask? Add another $100k to $150k for that as well! The most annoying part about "hit" singles? They aren't popular and on the radio because people like them, they're suddenly popular and suddenly on the radio because their publicists paid for them to be! 

Assuming a hit song by Rihanna costs $1.75 million dollars, I did some research. Savethechildren.org is a website where donors can sponsor a child in a third world country for $28 dollars a month, less than a dollar a day, which provides them with food, clothing, and shelter. With the $1.75 million that it took to create Rihanna’s hit single Man Down, she could be providing for 62,500 children in a underprivileged country for a month. Or, she could be providing for 625 children for 100 months, or almost 8 and a half years each.

To me, this is a huge issue of values in our culture. A bulk of our society would rather spend almost 2 million dollars on a crappy Rihanna song than donate money to try to save the world. The things that people do for pleasure and instant gratification are the things that make them happy, but they are also the things that create a materialistic society. Values are subjective, but the insane amounts of money spent on digitalized, autotuned, songs that sound just like the one before it is absolutely crazy! Sure, the money doesn’t necessarily need to go to savethechildren.org, but isn’t there somewhere else it could be benefitting?